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New Kodak CEO Jeff Clarke outlines growth strategy

Through the years: Kodak bosses

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2014

Jeff Clarke

SUNY Geneseo graduate Jeff Clarke selected as Kodak's latest CEO. "My
marching orders are that Kodak is in a position now where its balance sheet, its
legacy costs are behind it," Clarke said Wednesday, his first day on the job.
"I've been asked by the board to drive growth of the company. The mandate for
the new CEO is growth."

Antonio M. Perez named CEO. Average stock price is $27.46. Revenues are $14.3
billion, with loses of $1.3 billion. Perez would lead Kodak out of bankruptcy in
2013, saying his team created a "new company."

George Fisher, previously CEO of Motorola, is selected as Kodak's next
chairman and CEO. The 73-year-old Eastman Chemical Co. is spun off, and a year later Kodak sells off its non-imaging-related health businesses.

Eastman Kodak Co., for years on the financial ropes, might soon be in the market again to buy other companies.

And the company that for decades had its little yellow boxes on store shelves around the globe might instead soon see its products discreetly tucked inside other companies' gear.

New Eastman Kodak Co. CEO Jeffrey J. Clarke repeatedly said he has one primary goal — growth for the long-struggling and shrinking business icon. And in an interview with the Democrat and Chronicle, he sketched out an array of ideas and strategies for how to get there.

The plans, if they come to fruition, could mean a reboot for the Rochester-based icon that for years has been on the ropes. A wrenching 20-month Chapter 11 bankruptcy ended in September, with Clarke now hired to take the steering wheel of a very different company than his predecessor, Antonio M. Perez, took over in 2005.

"I think Jeff has a reasonable business now," said Philip Faraci, who spent more than eight years as Kodak chief operating officer and president before leaving in early 2013. "It's a clean business. He doesn't have legacy sort of issues. That's a great place to be, actually."

Clarke became CEO on Wednesday, replacing Perez. And after a succession of CEOs who had decades of experience at Motorola Inc., Hewlett-Packard Corp. and working up through the in-house ranks, Kodak now has a CEO with considerable background in the world of Silicon Valley tech firms.

"He's got experience in high level corporate finance. He's also got experience in business-to-business and that's important about what the new Kodak's going to be," said George Conboy, chairman of wealth management firm Brighton Securities. "I think the fact that he's got experience in technology, experience in imaging, experience with business-to-business and is probably quite highly regarded. You look at the organizations that he's been involved with and the fact that he's moved successfully through them — pretty strong pedigree in my view, and very worthy of a CEO of a growing technology company."

Kodak was very active with buying businesses a decade ago, most notably many of the printing-related businesses that today are the core of its operation. In recent years, Clarke said, Kodak "has had a challenged balance sheet. It was somewhat restricted in its ability to grow by acquisition. One of the flexibilities Kodak has now ... we can make acquisitions. Many companies have a bias, everything has to be engineered by their own labs. Other companies don't do R&D. Kodak has to do both."

The company also increasingly will focus on the original equipment manufacturer market (OEM), making components or products that another company then buys and sells under its own brand. Though the company already does some OEM work, selling Stream inkjet printing printheads that then go onto other companies' printing presses, Clarke called OEM "a significant untapped market for Kodak."

And then there's potentially a change in the incentive structure of Kodak's sales force, with a bigger emphasis on certain products. And perhaps targeting marketing and sales money more narrowly on a few key products.

"Nearly every company, Kodak included, needs to made more concentrated investments in areas where it can be successful," Clarke said.

At the same time, he said, it also might look at pulling out of some lines of business in order to put more resources, such as sales and marketing money, into others. He did not give specifics.

A different Kodak

The company Clarke now runs shares a name with the one Perez took over nine years ago, but not much else.

In 2005, when Perez was named CEO, Kodak was still a corporate giant, with revenues of $14.3 billion and roughly 51,000 employees worldwide, including 14,000 in the Rochester region. It was the biggest seller of digital cameras in the country, and second worldwide. And its graphic communications business, dealing with printing-related technology and products, was still a work in progress as Kodak that year bought prepress products firms Creo Inc. and Kodak Polychrome Graphics, a joint venture with Sun Chemical.

Today, the digital camera business has been shut down. The photo kiosk, document scanner, camera film and photo paper businesses have been sold off. And gone are thousands of workers and massive costs that had been albatrosses around the neck of Eastman Kodak Co. for years, including a huge pension liability in the United Kingdom and the tens of millions spent annually on retiree health care costs.

As of the first nine months of 2013, the most recent span for which numbers are available, Kodak had revenues of $3.1 billion. It ended 2012 with 13,000 employees worldwide, including roughly 3,500 locally.

Now, sink or swim, its fortunes are tied to various printing-related technologies — a line of business Perez built, Faraci said.

"When he came, no one expected film to be dropping off at 35, 40 percent a year," Faraci said. "That timeline was so fast, that was a huge burden. Dealing with the balance sheet, putting together a new business that goes forward ... that's his legacy. There's a solid business there today. The historical liabilities are now clean. They have a great balance sheet for a company of their size. Would he have liked it to be bigger? Yes. Would he like to have kept (the desktop inkjet printer business)? Probably yes. He went through it during an enormous economic reset. Look at it as, 'The company didn't go away.' The business left he totally created.

"You can feel bad about a lot of things, but there were companies in much better shape that went out of business."

Perez's legacy

At the same time, arguably a huge misstep was the hundreds of millions of dollars spent under Perez on a desktop inkjet printer line that Kodak ultimately abandoned in 2012, though it still makes replacement ink cartridges for the remaining printers.

Perez, through Kodak, could not be reached for comment.

He leaves behind "probably a mixed legacy," said Rochester Business Alliance President Sandy Parker. "People certainly respected what he did in some of his years, and what he tried to do. He was faced at the end of his term, unfortunately, with less favorable opinion. You have to look at the circumstances surrounding his time. His vision was something to be admired."

Kodak CEO Antonio Perez, center, talks with NYSE Executive Vice President Scott Cutler, second left, before opening bell ceremonies of the New York Stock Exchange earlier this year.(Photo: Richard Drew)

However, Parker added, "I'm not sure there was anybody who would have had a completely different result. The company was in a very difficult point. I'm not sure it was in a point where it could've been in a complete turnaround."

David Tomer of Greece, who retired from Kodak in 1991 and saw his pension disappear in Kodak's Chapter 11 bankruptcy, said he's been surprised at the board's seemingly unwavering support for Perez over time.

"I don't see what he did that helped Kodak at all during his tenure," Tomer said. "Perhaps I'm missing something."

Both Clarke's future — and how history views Perez — will likely depend on how viable commercial printing turns out to be for Kodak.

"Perez was handed a mess, no question in my mind," said Art Roberts, head of Kodak retiree organization EKRA Ltd. "What his legacy turns out to be will be interesting. Everybody's going to say it's the bankruptcy, but you've got to give it more time than that. Let's face it, every CEO has always depended on the profitable film business. When he took over, the profitable film business was gone, not because of him. You can make all kind of arguments about whether Kodak should have been ahead of digital substitution or not; that was long gone before Antonio Perez. The die was cast by the time he came in."

Clarke's challenges

Clarke starts work with a variety of hurdles to clear quickly.

In digital printing, Kodak is "still relatively small relative to major competitors," Faraci said. "The big printing companies are all in the double-digit billions of dollars revenues. The digital printing side for Kodak isn't quite at a billion yet. If they don't grow, that will be a struggle."

In commercial printing circles, Kodak's super-fast Prosper inkjet printing press is dogged by some issues of downtime and costs, said Lawrence Gamblin, president of Collins Inkjet Corp., a competitor of Kodak's in makng inks for Kodak's Versamark printer line.

Jeffrey J. Clarke(Photo: Provided by Kodak)

"It's a good product and I think it'll have a future," Gamblin said. "(But) there are other technologies which are nipping at their heels from a cost/performance standpoint."

Despite the massive changes at Kodak, Clarke still faces some of the same challenges that have plagued Kodak CEOs for years — namely, dealing with the dying but still lucrative motion picture film business. Kodak also makes camera film for spin-off Kodak Alaris.

"He's going to have to migrate out of the film business, and that's going to be a challenge," said Robert Shanebrook, a Kodak retiree and author of Making Kodak Film. "Hopefully printing ... can become an economic engine that lets the company continue to exist. The film business has hung on, I'm kind of surprised they've been as successful as it has been ... in the last 10 years. The new guy is going to have to execute a plan to move out of the film biz at some point and get rid of the assets. Do you do that in a two-year plan, a five-year plan, a 10-year plan?"

But the film business, even shrinking rapidly, is in far better shape financially after bankruptcy than it was before, Faraci said. "They would've jettisoned it in two minutes in Chapter 11 if they didn't feel they had a good handle and control on it," he said.

However, Clarke's biggest challenge might be in building confidence again in the company.

"The new Kodak is far from out of the woods," said Brighton Securities' Conboy. "They are out of bankruptcy, but they aren't out of the woods. You need to see a company that can consistently raise its revenues and make profits. We have not seen that yet. We'd like to see it. They need someone strong who can lead them to a profitable and growing future, a future that has not yet arrived despite their emergence from bankruptcy."

"Kodak's headquarters is in Rochester and will be there for the foreseeable future. In terms of employment and growth, our customers and the strength of our products will determine how we'll employ and where we employ around the world. If the products are as successful as I believe they will be, that will lead to employment growth in Rochester and around the world. Realistically we also have businesses that will decline and we'll balance those workforces."

On Kodak's strengths:

"When I looked at this opportunity, several things jumped out. One is an iconic brand. Second, a history and current practice of innovation and technology. If you can be innovative, you have a huge leg up on most people in the industry. The innovation and technologies Kodak has brought to market are very exciting. The leadership in functional packaging and commercial printing is what's going to lead to the growth for Kodak. Last, you can't forget how important it is to have a global footprint, a distribution network of people in dozens of countries around the world."

On dealing with Kodak's shrinking film business:

"All companies have challenges. In the case of Kodak, we have a series of product lines that are very innovative, very profitable, but in markets declining very rapidly. Those are businesses we need to balance our investment in and ensure we keep our customer satisfaction going. This is not rocket science — all companies have markets that grow and markets that are declining. We have to get our money behind the growth businesses."

On breaking up Kodak:

"The board has not given me a direction to break up the company. In some companies, it makes sense when a part of your company is underperforming or it would be better as a standalone company to spin them out. At Travelport ... I took Orbitz, the fastest growing part of Travelport, public because it was ready to be a public company on its own because it would grow better. My mandate is shareholder value. I'll evaluate all options."

On his management style:

"I believe in ... urgency around our decision making. I believe speed is often as important as thoroughness when making decisions in a competitive, fast-moving market. I believe in long-term investments, deep investments in technology. We'll invest in the long term, we'll be open on how we make our decisions."